By Robin Goldwyn Blumenthal at Barron's
The Federal Reserve may think inflation is too low, but if Green Street Advisors is right, we may be understating it. The Newport Beach, Calif.–based firm, known for its coverage of real estate investment trusts, argues that the widely followed consumer price index doesn’t adequately capture changes in housing costs.
Green Street believes its measure of housing costs, which is based on rents paid on 117,000 single-family homes and other dwellings, is superior to the method used by the Bureau of Labor Statistics (BLS), which surveys 50,000 renters and property owners. Housing costs account for almost a third of the CPI.
Rents on single-family homes rose 4.5% last year, Green Street calculates, compared with the 3.1% gain in the “owners’ equivalent rent” portion of the CPI. Using the Green Street figure, the boost in the 2015 CPI would have been 1%, rather than the 0.7% reported by the BLS last week. Core CPI, excluding food and energy costs, would have risen 2.5%, above the BLS’ 2.1% in 2015.
The difference isn’t trivial. The CPI is the basis for the annual change in Social Security benefits and returns on Treasury inflation-protected securities.
“Our database is broader and more current than theirs,” says Green Street’s Dave Bragg, who argues that much of the BLS data trails by a few months. Green Street relies in part on single-family homes owned by public companies like American Homes 4 Rent and Silver Bay Realty. Given the fixation on inflation, maybe it’s time to rethink the measure.